Arbitrage – The simultaneous buying and selling of a financial instrument in different markets to take advantage of different pricing.
Ask (offer) – The price at which a trader accepts to buy a financial instrument.
Backtesting – A feature of trading platforms that allow the testing of expert advisors on historical data. The results help traders and developers to assess the performance of their strategies.
Bid – The price at which a trader is prepared to sell a financial instrument.
Broker – An intermediary between the traders and the liquidity providers. It facilitates in the execution of clients’ orders.
Chart – A Graphical representation of price using a candlestick, bar or line chart.
Commission – An amount the trader is charged by the broker for facilitating a trade.
Commodity – A natural resource or agricultural product. There are two broad types - hard commodities and soft commodities. Hard commodities include for example crude oil, gold, silver and iron ore. Soft commodities include for example wheat, rice, soybean and corn.
Currency pair – The pair formed by two different currencies which are traded in a forex transaction. For example: EUR/USD.
Drawdown – When the value of an investment drops, the length between its peak and its low is called the drawdown.
EA (Expert Advisor) or Robot – It’s an automated set of detailed programming instructions on how to open, modify and close trading positions without human intervention.
Forex – Foreign exchange, or Forex for short, is the “place” where currencies are traded. In the forex market, currencies are traded in pairs. When a trader buys a
currency, he or she is selling another currency at the same time. Currency trading is the exchange of one type of currency for another. The forex market has no physical location or central exchange as it is a global, decentralized market and trades 24 hours a day, 5 days a week.
Gap – A difference between the previous period’s price and the next open price. It usually happens during weekends – between the Friday’s close and the Monday’s open price.
Go Long – To buy a financial instrument with the expectation that it will rise in price.
Go Short – To sell a financial instrument with the expectation that it will decline in price.
Indicator – Technical tools based on inductive statistics and mathematical formulas, which use price data, volume and open interest in order to identify future price trends.
Leverage – Leverage is offered by brokers to maximize traders' buying power by giving them the ability to deposit a small amount of funds and trade larger volumes. Leverage is expressed as a ratio form, so if it is 1:100 for example, a trader's buying power is magnified 100 times. Leverage provides opportunities for multiplied profits but at the same time one may have multiplied losses as well.
Lot – A lot is a standardized quantity of the instrument you are trading. In forex, one lot is 100,000 units of a particular currency.
Margin – This refers to the amount of money needed in your account to maintain an open position.
Margin Call – This is a notification which alerts you that you need to deposit more money in your trading account, to ensure that there is sufficient margin to keep existing positions open.
Market Order – An order for a trade to be executed instantly at the best available price.
Order (Trade) – An order for a broker to buy or sell a currency at a certain rate.
Pending Orders – Orders to buy or sell a financial instrument in the future when certain conditions are met. They consist of limit orders and stop orders.
Pip – A point in price, or pip for short, is the measure of change in a currency pair in the forex market. It is a standardized unit and is the smallest unit of measurement by which a currency quote can change. Most currency pairs are measured to five decimal places. For pairs like EURUSD, a pip corresponds to the fourth decimal digit [EURUSD 1.06712]. Yen-based currency pairs like USDJPY are the exception, and are measured to three decimal places and the pip corresponds to the second decimal digit (USDJPY 114.612).
Profit (Gain) – Positive amount of money that you earn for closing the position.
Profit Factor – The ratio between gross profits and gross losses.
Scalping – A trading strategy that benefits from small price movements.
Slippage – This is when a trader executes an order at a price which is very different to the price they expected the trade to be executed at. This usually happens during periods of high volatility, when traders use market orders and stop loss orders.
Spread – The difference between the Ask and Bid price of a currency pair.
Stop Loss Order (SL) – An order placed to close a position when a certain price is reached. These orders are placed to limit loss on a position.
Swap – An overnight fee for holding a position in Forex.
Take Profit Order (TP) – An order placed to close a position once it hits a specific price.
Tick – During trading hours Bid/Ask prices change as new incoming prices are received. A tick represents any single incoming price quote.
Trend – The direction of successive tops and bottoms:
- Uptrend – Successive higher tops and higher bottoms.
- Downtrend - Successive lower tops and lower bottoms.
- Trendless (Range, Sideways) – Equal tops and equal bottoms.
Volatility – This refers to the level of uncertainty surrounding price fluctuations of financial instruments. Volatility is usually characterized by rapid, random price movements.
VPS (Virtual Private Server) – A virtual space hosted on a dedicated server, used to run programs independent on the user’s PC. Ideal for automated trading (expert advisors).